Insights by sector

BUILDINGS

The buildings sector accounts for roughly 30% of global energy consumption. Although population growth and rising incomes will steadily drive up consumption in the coming decades, the sector will also face strong disruptions, as new energy-efficient technologies become available and governments incentivize a switch away from fossil fuels.

Residential building trends differ across segments

Development of residential energy consumption per use

Million TJ

Space heating consumption will peak around 2030

Space heating is most relevant in developed regions with cold climates such as Europe and North America, where the biggest disruptions will also occur

In these regions, more and more households will switch to modern, more efficient heating fuels and low carbon options, such as electric heat pumps

Cooking and water heating consumption will continue to grow

Africa and Asia contributed to over 70% of global consumption for cooking and water heating in 2015

Despite a switch from traditional biomass (i.e., wood and charcoal) to cleaner alternatives such as LPG, consumption will increase due to population growth

Appliances, space cooling, and lighting will drive up demand for power

Consumption from appliances and space cooling will increase rapidly due to rising living standards and electricity access, changing its global share from 13% to 22%

Lighting consumption will decline in the short term, mainly due to the rapid adoption of LEDs until 2030

Implications for the sector

The electrification of heat and an increase in welfare result in rapidly growing power consumption, while gas demand for buildings peaks around 2030.

Oil & gas sector

Natural gas demand for buildings is expected to peak around 2030, whereas oil demand will remain stable due to increased LPG use for cooking in developing economies that will switch away from cooking on bio-energy; this will require investments in infrastructure and higher LPG availability

Power sector

Electricity demand will continue to grow at a pace of 1.7% CAGR through 2050. It will require local grid upgrades in order to cope with new demand and investments in new generation capacity

Equipment manufacturing and development

The energy transition in buildings offers various new market opportunities and challenges, ranging from the development of cost-competitive heat pumps to substantially increasing the energy efficiency of products to comply with government regulation

To watch in the next 5 years

The energy transition is further accelerated by regulation and the adoption of efficient technologies.

Lighting

Global energy consumption for lighting will decrease by 36% in the coming five years, enforced by strict government regulations as well as consumers switching to more cost-competitive technologies such as LEDs

Regulations

A substantial policy push will be needed to comply with climate targets; following successful regulation enforcing a switch to LED for lighting, various countries are now developing regulation for segments that can bring large gains such as zero-gas targets for space heating

Asia

Many countries in non-OECD Asia will see a rapid change in energy sources used in buildings. China will become a regional leader of this transition, enforcing a switch away from coal to natural gas. In addition, more and more countries will switch from biomass toward more sustainable and efficient energy sources

Electricity demand outgrows demand for other fuels in buildings, resulting in a 43% electricity share of total energy demand in 2050

Electric heat pumps will be adopted in ~20% of OECD households by 2050

Tipping points

Reinforcing disruptors like the broad adoption of heat pumps and more efficient equipment can accelerate the energy transition in buildings.

Adoption of heat pumps

The adoption of heat pumps will bring a massive reduction in energy use for space heating and will contribute to reducing emissions from space heating and cooling. Policies and subsidies will play a vital role in accelerating this transition

Efficient appliances

The improving efficiency of devices can slow down or even reverse the increase in electricity consumption driven by a growing population and higher appliance ownership rates

Efficient lighting

Developing regions will switch away from using oil products for lighting purposes and leapfrog to the adoption of LED technologies; in the short term, the adoption of efficient solutions will cause a substantial reduction in demand per square meter, which will later rebound due to the constantly growing number of people and households

Model

Our buildings model projects energy demand in residential and commercial buildings based on a granular methodology, reflecting a change in consumption dynamics across six segments (e.g., space heating, lighting, cooking). In our bottom-up approach, we capture the different drivers for these developments, providing rich insights and implications.

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We are the analytical and business intelligence arm of McKinsey & Company’s energy practices. We serve leading international and national energy companies, oilfield services and equipment providers, utility companies, and private equity investors across the entire energy value chain.

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